Acct week 2

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Problem P4-1A

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P4-1A – Assign overhead using traditional costing and ABC; compute unit costs; classify activities as value- or non-value added
Managerial Accounting, 6th Edition, by Weygandt, Kieso, and Kimmel
Primer on Using Microsoft Excel in Accounting by Rex A Schildhouse
Problem P4-1A FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire
extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume ( 54,000 units), half-gallon
cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (
10,200 units), 2 -gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI.
Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300
or [1.5 hrs × (54,000 + 10,200)]. . Expected annual manufacturing overhead is $1,557,480 . Thus, the
predetermined overhead rate is $16.17 or ($1,557,480 / 96,300) per direct labor hour. The direct materials cost per
unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19.00
per unit for both the home and the commercial models.
The company's managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Drivers by Product
Home Commercial
Receiving Pounds $70,350 335,000 215,000 120,000
Forming Machine hours 150,500 35,000 27,000 8,000
Assembling Number of parts 412,300 217,000 165,000 52,000
Testing Number of tests 51,000 25,500 15,500 10,000
Painting Gallons 52,580 5,258 3,680 1,578
Packing and shipping Pounds 820,750 335,000 215,000 120,000
$1,557,480
Instructions:
(a) Under traditional product costing, compute the total unit cost of both products. Prepare a single comparative schedule of the individual costs by products, in the format provided below.
Products
Manufacturing Costs Home Model Commercial Model
Label Value Value
Label Value Value
Label Value Value
Label Formula Formula
(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
Activity Cost Pool Estimated Overhead ÷ Expected Use of Drivers by Product = Activity-Based Overhead Rate
Receiving Amount ÷ Amount UOM = Formula per pound
Forming Amount ÷ Amount UOM = Formula per mach hr
Assembling Amount ÷ Amount UOM = Formula per part
Testing Amount ÷ Amount = Formula
Painting Amount ÷ Amount UOM = Formula per gallon
Packing and shipping Amount ÷ Amount UOM = Formula per pound
Formula
(c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)
Home Model Commercial Model
Activity Cost Pool Expected Use of Drivers Activity- Based Overhead Rates Cost Assigned Expected Use of Drivers Activity- Based Overhead Rates Cost Assigned
Label Amount Value Formula Amount Value Formula
Label Amount Value Formula Amount Value Formula
Label Amount Value Formula Amount Value Formula
Label Amount Value Formula Amount Value Formula
Label Amount Value Formula Amount Value Formula
Label Amount Value Formula Amount Value Formula
Total costs assigned Formula Formula
Units produced Amount Amount
Overhead cost per unit Formula Formula
(d) Compute the total cost per unit for each product under ABC.
ABC Mfg Costs Home Model Commercial Model
Label Amount Amount
Label Amount Amount
Label Amount Amount
Label Formula Formula
(e) Classify each of the activities as a value-added activity or a non-value-added activity.
Activity Value - Vs - Non-Value-Added
Activity Value or Non-Value Added
Activity Value or Non-Value Added
Activity Value or Non-Value Added
Activity Value or Non-Value Added
Activity Value or Non-Value Added
Activity Value or Non-Value Added
(f)(1) Comment on the comparative overhead cost per unit for the two products under ABC.
(f)(2) Comment on the comparative total costs per unit under traditional costing and ABC.

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Problem P4-2A

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Course:
Date:
P4-2A – Assign overhead to products using ABC and evaluate decision.
Managerial Accounting, 6th Edition, by Weygandt, Kieso, and Kimmel
Primer on Using Microsoft Excel in Accounting by Rex A Schildhouse
Problem P4-2A Schultz Electronics manufactures two large-screen television models: the Royale which sells for $1,600
and a new model, the Majestic, which sells for $1,300 The production cost computed per unit under traditional costing for
each model is 2014 was as follows.
Traditional Costing Royale Majestic
Direct materials $700 $420
Direct labor ($20 per hour) 120 100
Mfg overhead ($38 per DLH) 228 190
Total per unit cost $1,048 $710
In 2014, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead
rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000
by the direct labor hours 200,000 for the two models.
Under traditional costing, the gross profit on the models was: Royale $552 or ($1,600 - $1,048) and Majestic
$590 or ($1,300 - $710) Because of this difference, management is considering phasing out the Royale model and increasing the
production of the Majestic model.
Before finalizing its decision, management asks Schultz's controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2014.
Activity Cost Driver Estimated Overhead Expected Use of Cost Drivers Activity- Based Overhead Rate
Purchasing Number of orders $1,200,000 40,000 $30 per order
Machine setups Number of setups 900,000 18,000 50 per setup
Machining Machine hours 4,800,000 120,000 40 per hour
Quality control Number of inspections 700,000 28,000 25 per inspection
The cost drivers used for each product were:
Cost Driver Royale Majestic Total
Purchase orders 17,000 23,000 40,000
Machine setups 5,000 13,000 18,000
Machine hours 75,000 45,000 120,000
Inspections 11,000 17,000 28,000
Instructions:
(a) Assign the total 2014 manufacturing overhead costs to the two products using activity-based costing (ABC).
Royale Majestic
Overhead Rate Rate Drivers Used Cost Assigned Drivers Used Cost Assigned Total Overhead
Label Amount Amount Amount Amount Amount Formula
Label Amount Amount Amount Amount Amount Formula
Label Amount Amount Amount Amount Amount Formula
Label Amount Amount Amount Amount Amount Formula
Total assigned costs Formula Formula Formula
Units produced Amount Amount
Cost per unit Formula Formula
(b) What was the cost per unit and gross profit of each model using ABC costing?
Royale Majestic
Label Amount Amount
Label Amount Amount
Label Amount Amount
Total cost per unit Formula Formula
Label Amount Amount
Label Amount Amount
Label Formula Formula
(c) Are management's future plans for the two models sound? Enter your answer in the block below.

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